Foreign companies entering the China market rarely have an easy ride. Service industry companies, in particular, require impressive office spaces – in a prestigious location, with suitable décor and equipment – and support staff with local knowledge. That might sound like a tall order, but it does not have to be. A serviced office can be the answer.
Serviced offices – spaces that come fully furnished and equipped, like serviced apartments – arrived in Shanghai in the late 1990s, according to Kevin Crowe, Shanghai group general manager at the Executive Centre, a serviced office provider. They can occupy entire building floors, and come with common reception areas and shared facilities. Tenants can choose from single person desk spaces to offices for dozens of people.
The Executive Centre has been able to make considerable inroads into the China market on the back of rising demand for grade A offices.
“There is a rapidly growing office market in Shanghai, Beijing and the secondary cities,” said Paul Salnikow, the company’s CEO.
Rising market rates
Rents for traditional office space in China’s major cities, especially, are rising fast. Raymond Ho, director of valuation at Vigers, a Hong Kong-based property consultancy, points to the low US$13.70 monthly rate for a square foot of grade A office space in Shenzhen compared to the US$31.30 one expects to pay in Shanghai’s more popular business districts.
Expensive office space in China’s top cities means foreign companies can benefit from serviced offices. With their relatively low fixed costs, they can be used to ride out the current boom in rental markets while providing shelter during a downturn, when every yuan saved is valuable.
Besides being cheap, serviced offices give tenants plenty of flexibility. They can choose from different floor plans and sizes as their personnel needs change. Everything else – the stylish furnishing, internet connections, internet telephony, and translation support services – remains available throughout any change in office size.
A serviced office’s flexibility extends to rental terms. Contracts are usually monthly instead of the traditional yearly agreement. Prices vary along several dimensions: tenants in more prestigious locations pay a premium; smaller core offices are cheaper than roomier corner lots; and panoramic views cost extra.
Overall, occupancy rates at serviced offices in the mainland are high. The Executive Centre’s Crowe has seen occupancy rise from 10% in the company’s first facility in 2000 to an average of nearly 90% for all three of their centers today. A fourth center will open in August to cater to the growing demand.
Serviced office providers are entering new markets as their clients move beyond big cities.
Regus, a provider with 18 branches in China, opened a facility in Guangzhou last year, and will open another this month. The Executive Centre is looking to open 20 new branches in China, including in secondary cities like Chengdu and Dalian, by the end of next year.
“We’re following our clients into these markets,” Salnikow said.
All serviced office providers also market what they call virtual offices, which offer no physical space beyond a mailing address. Signing up for one gets you local mailing and e-mail addresses, receptionist services, and call forwarding to a mobile or home phone. Access to meeting rooms at the closest serviced office facility is available for a fixed hourly rate.
According to Wilfred Fong of Regus in Guangzhou, both virtual and serviced offices allow clients to reap the benefits of outsourcing. His center provides a “one-stop” solution, offering translation and business registration services so clients can “keep doing what they do best.”
Extra services like Regus’s can make all the difference. John Eldred of American law firm Keller and Heckman speaks appreciatively of the help he received from CEO Suite, another serviced office provider, in renewing his residence and practice registration in Shanghai and preparing seminars in Beijing.
Eldred, who was a two-year tenant at CEO Suite’s Luwan location in Shanghai before moving to a traditional office space, said that he benefited from the expertise of a “wonderful” executive secretary supplied by the center at hourly rates.
Indeed, experiences like Eldred’s seem to be common. Serviced offices have become so attractive to some tenants that they want to make these temporary workspaces permanent.
As Kevin Crowe, of the Executive Centere, noted: “We have clients in Shanghai that have now been with us for nearly five years.”
Serviced offices offer more
Serviced office features
- Traditional offices require a long-term, usually annual, minimum leasing period.
- Serviced offices have easily extendable monthly leases.
Serviced office layouts
- Serviced offices offer flexible floor sizes, from single-person desks to space for up to 50 people.
- Conference rooms, specialized office equipment and services are available on an hourly basis.
Main players in China
- Regus: 19 centers in China, with mainly multinational clients and a growing number of local startups.
- Executive Centre: 12 centers in China, mostly with multinational clients, expanding into secondary cities.